Nagarjuna oil floating in troubled waters again

The first trouble for this Rs 18,000 crore venture occurred a few years ago when a cyclone rammed the southern coast and tossed its machinery.Bharani Vaitheesvaran | ET Bureau | September 22, 2015, 13:23 IST

CHENNAI: Just within a fortnight after wrapping up a massive investment jamboree, Tamil Nadu finds one of the big-ticket agreements it signed muddled in a payment crisis.

A tug-of-war between a new investor and lenders over who should make advances for staff salaries and equipment upkeep has the Nagarjuna Oil Refinery project in Cuddalore in the throes of its second crisis.

The first trouble for this Rs 18,000 crore venture occurred a few years ago when a cyclone rammed the southern coast and tossed its machinery.

The project received a new lease of life with Singapore-based Netoil, which began due diligence in December last year, deciding to infuse Rs 3,600 crore of fresh equity for the majority stake in April this year.

Under construction for years now, the project has thus far been funded by the promoter Nagarjuna Group and a bank consortium led by IDBI and including State Bank of India at an interest cost of Rs 60 crore a month. It is expected to be commissioned by November 2017.

Following a deal signed during the recent Global Investors Meet (GIM) at Chennai, the state government last week put out a government order notice on a deal to refund value-add ed tax as an investment promotion for this project.

This VAT refund has become a bone of contention as sources say the lenders, who are now exposed to this venture, want a Rs 6,000 crore portion from the VAT refunds by way of compensation for writing off previous debt.

The deadlock has persisted, freezing project expense costs from the banks.

Nearly 170 employees, engineers, managers and support staff have been owed salaries for 10 months now. The refinery, which once had a strength of 450 personnel, has seen a steady staff erosion over time and at an accelerated pace over the past one year.

Local service providers like truckers, diesel suppliers and housekeeping personnel have now begun to agitate and threaten employees on the rolls over non-payment of dues.

"The cost of salaries and equipment preservation are Rs 2 crore a month. If the lenders do not pay, we have no choice but to suspend operations at the plant," said a top official at the plant, who wished to remain anonymous. The official said SBI, which has exposed Rs 950 crore to the project so far, has had its reasons to not disburse further.

IDBI Bank, the lead lender, addressed a letter in mid-July to lenders to speed up fund release as the banks have agreed in a meeting to meet the target.

The letter said: "Negotiations with the investors are in an advanced stage. It is in the interest of all lenders to ensure proper upkeep". Executives from NORL and Netoil met top officials of SBI to negotiate fund release but the meeting turned out to be futile. Mails sent to SBI seeking responses to the development went unanswered.

Administrators of the much-delayed project have tried hard to avoid a closure all this while.

A slew of formalities that accompanied the term sheet from Netoil have yet to be done, forcing Netoil to hold back a promised fund of Rs 24 crore for plant upkeep and salaries.

In a letter after agreeing to take over the plant, Netoil had written to the plant administrators about its apprehensions: "Due to hensions: "Due to the lack of progress from the promoters and the banks, our chairman and promoters are questioning the commitment on the project from current stakeholders".

The investor had also promised $10 million for maintaining the plant should it be completely inducted into the company.With procedural delays, these funds have also not flowed in yet.

The state government, however, is sure the project will get back on track."This is not a showstopper, but just a minor issue. It happens in all takeovers," said a government official in charge of investment promotions in the state.